I am on my financial journey and have been following the BH path with success.

Currently I am 28 married and own a townhome in a HCOL area.

At this point in time we are really making progress on our financial goals. We are able to max out all tax advantaged space with additional funds to invest. In general our bonus frees up around 20K of after tax cash to invest each year along with an additional $2,600 a month (salary).

We have started a taxable brokerage account and have been building it up with this money. Our goal is to have enough passive income to be able to "downshift" our careers in our late 30's. Our plan is to by a SFH in a premium neighborhood, not as a financial move but for our own happiness.

I am bouncing around the idea of keeping the townhouse as a diversifying income stream outside of the stock market (where eventual bulk of wealth will be). Not trying to be a RE guru just eventually get it paid off and have a nice monthly check coming in. If we paid off this home we could then use the rent check to subsidize the mortgage on our new primary and not feel the need to work so much.

I don't think if I were to sell the place and put that money in the stock market I would actually use it in the same way (subsidize new mortgage). I feel like with volatility I would not be comfortable using it early.

I bought a couple CD's expiring in May 2020 as that is the goal timeline for acquiring the next house. We should have anywhere from $80-$150K saved up by that time (high end is from potential payout). I am thinking I will split the $2600 a month half for house savings half for stocks(taxable).

I am young and recognize that I should listen to others so I am asking for opinions on this?

Financial Details:

Salary and Bonus: $215K Year
Current PITI Town House: $1,625
HOA: $110 (Covers everything outside of the house so my maintenance would be interior costs, new build in 2014.)
Could Rent:$2,000-$2,300 (I have been using low end ($2,000) to be conservative.)
Market: Denver
Market Value Town Home:$415K
Mortgage:$224K
Purchased: $297K
CDs: $20K
Taxable Brokerage: $11K
Retirement(Tax Advantaged):$258K
Upside Potential: Equity payout potential in 2Yrs and then most likely another one a couple years later. Various sizes hard to tell what it will be but could be significant, (enough to pay off townhouse).

I used to live in a townhouse complex in a HCOL area where a number of people were making good money renting out the unit they used to live in. The tenants in the unit next to mine lived there for 10 years, paid the rent money into the landlord's checking account by direct deposit each month and did their own minor repairs on the townhouse - you will likely NOT get a tenant like this!!

As with anything, there are pros & cons. In my old complex, so many people wanted to rent their unit that the Board changed the CC&Rs to restrict the number of units that can be rented - this is actually a good thing as you don't want a low owner to renter ratio. Be sure to check what restrictions you might have if you rent your townhouse out.

If you are going to be the landlord, have a plan in place so that someone can handle emergencies if you are out of town/on vacation. If you decide to use a property management company, that's going to cost you 10% of the rent so you'll barely break even each month.

Rather than pay off the mortgage completely, when your first equity payout happens, consider using enough of it to pay down the principal so that you only have 8 years left on the mortgage. By the time you are wanting to downshift, the tenants will have paid off the rest of the mortgage. You can then use the remaining payout money to pay down the principal on your new home.

The biggest thing you have to consider is if you really want the hassle of being a landlord - some people like it and some people hate it. If you're lucky and get a great long term tenant, then you'll be really happy with your decision. If you decide you don't like being a landlord, sell it within 3 years of moving out so that you can still make use of the $500K capital gains exclusion.

If you're in a VHCOL area and you end up with 2 properties, a rental unit and a residence, you may be overweighted in the real estate area and, when the real estate prices decline (they inevitably do now and then), you could be in a bad way. Oftentimes local real estate prices tank when local employment tanks, could be a double wammy. You might be sure it couldn't happen to you but a lot of people have felt that way in the past, and found out they were wrong.

This is a common stepping stone for those wanting to venture into R/E rentals and income diversification.
You will also have the tax benefits.
As your salary and savings are substantial enough to ride out any vacancy periods, and so forth, it can be a good move if gone about sensibly. This means, no high-leveraging, keep your CAP rate to 4-6% and absolutely no lower, and have your property management company in place at low cost self manage it which can have many advantages or not depending on what your goals are.
You will also be gaining the annual (tax deferred) appreciative value of the townhouse in your HCOL area.
And, as you mention, this can indeed be a good move to get an early start on things at your age.

There are pros and cons to the move and, of course, substantial long term potential upsides as well as downsides.
I would do it. There are others that would also. And many in various financial positions would not.

You can stop at the one rental and reap the advantages. And, learn a lot along the way. Later you may want to expand in R/E if you find it to your liking. Or sell it if not.

"RetiredTrvl" and "123" and others have brought up good points.

Ultimately, the decision is yours.
IMHO, financially and given your apparent enthusiasm, ambition, maturity, and savvy, I see no reason not to.
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Nate79 I am familiar with it. I have done a ton of research on rentals in the last couple years. Have read books, discussed on forums, and listened to podcasts. I am not trying to just force it to work.

Sandtrap thanks for the response and the compliment. My wife and I have been working hard to get to where we are and have a lot of work ahead of us still.

I think that it would be a good way to diversify an income stream and use a bit of leverage. I have seen many people go nuts with real estate and it is not for me. I am trying to reach FI for sure and I know there is no easy road.

I think having an extra paid off house eventually as a rental in a growing market over the long term would be a good thing.

This would supplement my boglehead portfolio well. Now I guess I will just keep thinking on it while I sock away the cash, hopefully I can get lucky with a housing correction in the next couple of years.